By Andrew Sherlock
While a holiday home can become your own piece of paradise and create many happy memories, organising how to finance it takes preparation.
Many of us have dreamed of owning a holiday home, creating an escape from the hustle and bustle of city life. Holiday homes are great for bringing family and friends together and making memories. Whether it’s a beach house or a spot in the bush, it’s a place to unwind and relax. It can also be used to generate income as a short-term rental property when you’re not using it.
If this is on your bucket list, then here are some things you need to keep in mind.
Lead with your head
Firstly, plan how you’re going to use the property and how you will finance it. Ask yourself some questions such as:
“Can I afford to buy somewhere a few hours away and keep it for just family and friends?”
“Would I consider buying with other family members or with friends?”
“Would I prefer to rent it out to cover costs, and how many weeks rental would I need for it to become profitable?”
Holiday home finance is different
Lenders and the ATO view a holiday home as an investment property – whether or not you rent it out.
This means lenders require a bigger deposit and may charge a higher interest rate than for an owner-occupied property. While you may be able to use the equity you have in your main home for the deposit, lenders still want to see that you can service the loan.
While short-term holiday lets can earn higher rents, the income may not be year-round, even though the property’s ongoing expenses and upkeep are. These include extras like specialised landlord insurance, property listing website costs, regular maintenance, cleaning, utilities and the replacement of household items such as towels and kitchen items.
You’ll also need to consider the current council rules for short-term lets. In some areas, there are restrictions, such as the number of weeks a property can be let. These rules can change and it is the landlord’s responsibility to stay up-to-date.
Tax implications
The good news is that you can claim property-related costs as a tax deduction. If you’re only renting for part of the year, then the deductions are for the rentable period only.
If you’re thinking of buying the property through your Self-Managed Super Fund, remember that it cannot be used by you or your family. It’s a good idea to check the ATO website or with your accountant about the tax rules around rental income and any capital gains you’d have to pay if you sell.ii
If you have any questions about how to make your holiday home dream a reality, talk to us today.
As always, we’re here to help, so reach out to the Sherlock Wealth team here.
Andrew Sherlock is the Owner & Head of Advice at Sherlock Wealth.
A Sydney-based financial planning firm, Sherlock Wealth has been helping successful families, business owners and individuals with their wealth creation and wealth protection needs for more than two generations.
A Chartered Accountant with a background in funds management, Andrew’s career spans more than 30 years. Andrew was one of the first people in Australia to obtain the Self-Managed Superannuation Specialist accreditation and is one of only a few advisers in Australia to be a Certified Investment Management Analyst. He is a lifetime member of the international MDRT Top of the Table and holds a BA Economics degree from Macquarie University with majors in accounting and finance.
Helping clients achieve their lifestyle goals through smart investing and asset management, wealth structures, and strategic planning are the cornerstones of what Andrew and the team at Sherlock Wealth provide.
Andrew can also be contacted at [email protected].
